Campaign Finance Institute: Small Donor Public Finance in New York State - Major Innovations, with a Catch

[On March 12, 2020 a New York State court vacated the small donor public financing law that is analyzed in this report. Future legal or legislative action regarding the law is to be determined. We believe this report will continue to be relevant to any future deliberations in New York State, as well as other jurisdictions considering adopting public funding.]

EXECUTIVE SUMMARY

On January 1, 2020, New York became only the second state in this century with a new public campaign financing system for state elections – the first since the U.S. Supreme Court’s Citizens United decision in 2010. This report by the Campaign Finance Institute (CFI) argues that some of the plan’s innovative provisions are worth noticing nationally – particularly the provisions for legislative elections. The report also argues that some essentially unrelated items on minor-party ballot access threaten to pull the whole package down.

The campaign finance provisions for legislative candidates are both new and far-reaching. The program will offer very high matching rates (as high as twelve-to-one for the first $50), using a tiered structure that has only been tried rarely and in a more modest way.[1] In addition, the new law will only match money from small donors (not the first dollars of a larger contribution as is done almost everywhere else) and it will be the nation’s first program that will only match money from donors who live in the legislative district a candidate is running to represent. And finally, in another first, the law has been structured to make it easier for candidates from low-income districts to qualify for matching funds. Together, these provisions are designed to strengthen the ties between representatives and their constituents at a time when the other main alternative to big money has been a form of Internet-enabled mobilization untied to geography that relies upon cause-based networks.

If the new system works as the modeling in this report suggests, it will have a dramatic impact on the sources of election money in New York State elections. New York State’s candidates traditionally have received the bulk of their contributions from large contributions given by individuals and organizations. Under the new system, we predict that the proportional role of small donors in Assembly races will increase from 14% of candidates’ receipts to more than two-thirds. In Senate races, the proportion will rise from less than 10% to more than half. (For graphic presentation see the charts on pages 22-23.) In fact, if you assume a reasonable number of donors, the tiered matching system is a clear winner for almost all kinds of candidates, including challengers from districts with below-average incomes. As a result, we could foresee these provisions becoming templates for adaptation and use elsewhere. In contrast, the provisions for gubernatorial and other statewide candidates seem more conventional, following an approach used in New York City. Even so, the modeling shows that these too will have a significant effect.

The most glaring public criticism of the new law concerns ballot access for minor parties. This report did not examine the merits of ballot access, but with respect to cost the analysis found no evidence to support the claim that leaving ballot access unchanged would push the overall price of public financing significantly higher. The net increase above CFI’s estimate is likely to be close to zero. As a result, the report argues that the ballot access provisions can be and should be considered legally severable and logically distinct from the public financing provisions.

CAMPAIGN FINANCE INSTITUTE’S ROLE

Before analyzing the law, we should in the interest of public disclosure let readers know about the Campaign Finance Institute’s (CFI) participation in the New York State process. CFI has followed the commission’s work closely since its appointment in July. In part, CFI was stepping into a void created by the original mandating legislation that gave the commission no budget to hire staff. CFI’s public testimony in September urged the commission to hire competent consultants to help it sift through data to analyze the fine-grained details of policy options it was about to weigh. The consulting role our testimony described was one CFI/NIMP had played as consultants to the Mayor’s New York City Charter Revision Commission of 2018. However, the state commission could not hire similar consultants. CFI secured grants from private philanthropic sources[2] that put it in a position to respond to questions from the commissioners while retaining CFI’s independence.

CFI was able to do this in a timely way because its parent organization, the National Institute on Money in Politics, updates and maintains a standardized archive of campaign finance data from all fifty states, the federal government, and selected localities. Those records make it easier to combine contributions from a single donor, which is necessary to calculate the effect of contribution limits and matching funds. NIMP also geocodes each donor and placed each of the New York donors within legislative districts. This too was necessary for the analysis that follows.

Given these capabilities, CFI responded to the commission’s questions in memos written throughout the autumn of 2019. Because CFI was not on a consulting contract, it has also been free to initiate analyses. The work of these past months undergirds this report and the memos themselves are available. However, the memos reflect earlier options, some of whose details no longer remain relevant. We also should note that CFI was not the only organization engaged in this process. The Brennan Center for Justice conducted many analyses that paralleled CFI’s while also playing an advocacy role, which CFI did not. The two organizations have consulted each other about their analyses. We usually (but not always) reached similar results. These interactions have strengthened this work. However, the conclusions in this report, and any errors it may contain, are CFI’s.

SITUATING THE MOMENT HISTORICALLY

To evaluate the proposed New York system fairly it is useful to place it in historical context. Only five states offer any form of public campaign finance to candidates for state legislature. A few others have programs for gubernatorial or other statewide offices. Two of the legislative programs date from the 1970s. Hawaii’s, adopted in 1979, fell mostly into disuse when the funds ran too low, spending limits became too constraining, and candidates chose not to opt in. Its trajectory is much like that of the presidential campaign finance system. Minnesota’s partial grant system, adopted in 1974, is coupled with a $50 political contribution refund system that continues to hold the support of candidates from both major parties. The three other states are Maine (1996), Arizona (1998), and Connecticut (2006). All provide full public grants to qualified candidates for both primary and general elections. In each state, participating candidates are supposed to limit their spending (after qualifying) to the flat grant. At the time these programs passed, there was concern about whether candidates fearful of high spending opponents or last-minute independent spending might be afraid to opt in. To counter this fear, the programs offered extra money to participating candidates who might be faced with these situations. However, the U.S. Supreme Court found this “trigger” money to be unconstitutional in a 2011 decision that otherwise upheld voluntary public financing.[3] In the years since, participation by the candidates has gone down in Arizona and Maine while independent spending has increased.

No state has passed a public financing program since 2006. However, a number of municipalities have responded with programs that experiment with new devices. All generally seem to recognize that one cannot freeze big money out of the system. However, it is possible to make candidates less dependent on large contributions and better able to supply their campaigns with adequate resources from small contributions. With enough from small donors and public funds, the idea is to help candidates build the support networks that would make them less vulnerable to outside money parachuted into an election at the last minute.

The theory has had a good test run in the city of Seattle, which in 2015 passed a citizen-led initiative instituting a new voucher system under which city residents receive four $25 vouchers to give to the candidates of their choice in municipal elections. While the voucher system has not yet had a full test, and unintended consequences have yet to be identified, some early results from the first two elections look promising. According to one recent study, small-donor participation went up substantially in 2017 and the donors were more representative demographically than in past years.[4] And perhaps most interestingly for the concerns expressed in Arizona and Maine, Seattle’s participating candidates in 2019 were able to withstand massive independent spending dumps against them by Amazon Inc.[5]

Other local programs since Citizens United have used variations on a matching-fund theme. This includes new or still-to-be implemented programs in Montgomery County (Maryland), Howard County (Maryland), and the District of Columbia. But the grandparent for all of the modern matching fund programs is New York City’s. At first, the city’s system enacted in the late-1980s resembled those of the immediate post-Watergate era, with one-for-one matching funds for the first $1,000 of any eligible contribution. This changed with the election of 2001 when the city began to offer a four-for-one match for the first $250. The stated purpose was to encourage candidates to mobilize and rely more on small donors. The rates were increased for the 2009-2017 elections to a six-for-one match for the first $175, and increased again after the charter revision of 2018. Peer-reviewed publications whose co-authors included the authors of this report found the New York City program to have been successful at bringing more donors from more diverse neighborhoods into the campaign finance system, and at making candidates more dependent on small donors than they would have been without the matching funds.[6] The city’s program as it stood in 2017 was the explicit model from which New York State began its deliberations in 2019.

LAW BY COMMISSION

The law that emerged at the end of the year in 2019 had gone through a convoluted process with a long history behind it. New York State’s Democratic (and some Republican) legislators have said they favored public financing for more than twenty years. However, they have never managed to agree on the same bill at the same time.[7] The last time public campaign finance seemed close to adoption in New York was during Gov. Andrew Cuomo’s first term in office after he had campaigned on the issue in 2010. The Assembly passed a program similar to the one then in effect in New York City. That program would have given $6 in public matching funds for each of the first $175 a participating candidate raised from an individual resident of the state. A majority of the State Senate’s Democrats also supported the idea. Democrats held a nominal majority in the Senate but a small breakaway faction (the Independent Democrats or IDC) caucused with the Republicans to form a cross-party majority that refused to let the bill come up for a vote. This situation prevailed through 2018.

In 2018, however, most of the IDC Democrats in the State Senate were defeated in primaries by progressive Democrats. This meant Democrats, caucusing together, would now control both chambers of the legislature as well as the governorship. On paper, that meant they should be in a position to move forward with an agenda that included campaign finance reform. The governor included campaign finance matching funds as part of the Executive Budget he sent to the legislature in January 2019. As in the past, his recommendation was based on New York City’s system. Including the proposal within the budget meant that it could become law under expedited legislative procedures. This had the active support of a large coalition of progressive reform organizations.[8] However, it became clear during budget negotiations that Assembly Democrats who had supported public financing in the past were now concerned that it might become law. The stated concern was about independent spending but there was good reason to suspect it was also about letting challengers supplement small contributions coming from anywhere in the state with matching funds that could be used against them in primaries. They were not ready to agree to a program, but neither did they want to take the responsibility for killing it.

Instead of a new campaign finance law, the April 1 budget created a temporary New York State Campaign Finance Reform Commission. Commissions are often seen as graveyards for legislative ideas but this one had an unusual mandate. The budget law directed the commission to forward its recommendations by December 1 and then, unusually, added that the commission’s recommendations would become law unless amended or overridden through a formal statute enacted by December 22. The odds were always low that the commission would recommend something the legislature would overturn. That was because of the commission’s membership: two members were appointed by the governor (one of whom turned out to be the chair of the state Democratic Party), two by majority leader of the Senate, two by the speaker of the assembly, one each by the minority leaders of the Senate and Assembly, and a ninth member appointed jointly by the speaker, senate majority leader, and governor. In other words, the Democratic leaders and governor were in firm control. This engendered suspicions among reformers, particularly when the commission’s mandate reached out to include the role of minor parties. In the end, the commission did make its recommendations, the legislature did not call a special session, and the recommendations became law. Any future session of the legislature can always amend the law, of course, but that will require both chambers and the governor to agree. Before this commission, they had not been able to do that.

THE COMMISSION’S RECOMMENDATIONS

The budget act set out the commission’s mission in the following words:

There is hereby established a public campaign financing and election commission to examine, evaluate and make recommendations for new laws with respect to how the State should implement such a system of voluntary public campaign financing for state legislative and statewide public offices, and what the parameters of such a program should be. The commission shall make its recommendations in furtherance of the goals of incentivizing candidates to solicit small contributions, reducing the pressure on candidates to spend inordinate amounts of time raising large contributions for their campaigns, and encouraging qualified candidates to run for office.

The commission was told the program should cost no more than $100 million per year.

The bulk of this report will analyze the new campaign finance law’s most important parts, with a summary of each presented together with the analysis. The order is as follows:

First is an extended discussion of the complicated matching fund system itself, which includes the matching rate, the donations considered eligible for matching, and the maximum amount of public funds any one candidate may receive. We present these first because they contain the new law’s most important innovations.

Next is a section on which the law nearly floundered: what candidates will have to do to qualify to receive any matching funds (“qualifying thresholds”). Previous CFI reports noted that the qualifying thresholds in the governor’s original bill were set so high that most candidates would not have been able to participate, thus defeating the program’s basic purpose.

Third is a discussion of contribution limits. This is a section in which the changes were modest. It has drawn criticism from many reform advocates.

After these pieces have been presented, we will be in a position to analyze what the combined features would mean for the sources of funds in New York State’s elections.

We will also be in a position to analyze the program’s cost.

With the cost analysis complete, we will consider whether the minor party issues the commission considered would have any noticeable impact on the overall costs.

Finally, we close with concluding thoughts.

TIERED MATCHING FUNDS

The new matching fund plan is made up of many parts. The proposal offered in January 2019 had a straightforward matching system: six dollars of public matching funds were to be provided for each of the first $175 given to a qualified participating candidate by a donor from anywhere in New York State. If donors gave more than $175, the first $175 would still be matched. The formula was identical to the one in effect in New York City from 2009 through 2017 and was endorsed by most of the organizations that favored public financing.

Within the commission was consensus in favor of retaining a 6:1 match for statewide candidates while increasing the match to cover $250 instead of $175. However, it rejected the idea of matching the “first $250” of any contribution. Instead the new law will only match contributions from donors who give an aggregate amount of $250 or less. In addition, a majority of the commission’s members refused to match contributions to legislative candidates that come from donors who live outside of the candidate’s district. As expressed publicly by the commission’s majority, modern fundraising techniques and social media platforms make it too easy to generate small contributions from donors who have little knowledge of or connection to the candidates they were supporting. While they said they had no problem with contributions crossing district lines, and made such contributions themselves, commissioners wished to reserve public money for strengthening the connections between candidates and their geographic constituents. The new law therefore restricts matching funds in Senate and Assembly elections to within-district donations.

Some of the commission’s critics expressed concern that this would tilt the field toward incumbents by making it difficult for challengers to gain financial traction. One issue related to the wide variation in wealth across districts. (As we shall see, the concern about district wealth was also prominent with respect to qualifying thresholds.) Was there really enough money in poor districts to let potentially viable challengers pay for a credible campaign by matching only those small contributions that might come from in-district residents? To respond, the commission at first thought about complicated matching formulas that would vary the matching rates according to a district’s wealth. It later replaced this approach with what it called a “progressive” or “tiered” matching plan for all legislative districts. Under this plan, the matching rates for those who gave $250 or less would be as follows:

The first $50 would be matched at a 12:1 rate.

The next $100 ($51-$101) would be matched at a 9:1 rate.

The next $100 ($151-$250) would be matched at an 8:1 rate.

Using these rates, a $50 contribution would be worth $650 while a $250 contribution would be worth $2,550. This is 46% more than the $1,750 that $250 would be worth with a straight 6:1 match. A legislative candidate who could raise 100 within-district contributions of $50 thus would see $5,000 in private funds become $65,000 in campaign money.

The commission also decided that it would not impose mandatory spending limits on candidates who accept public funds. Spending limits have been problematic in an environment that includes post-Citizens United independent spending. However, the lack of a spending limit means that there had to be some ceiling on the public funds each candidate might receive. The commission set those caps at a combined $7 million for all statewide candidates, $750,000 for the Senate and $350,000 for the Assembly. In each case, the amount is to be divided between the primary and general elections, with public funds to be available only to candidates running in a contested election.

Analysis

The law’s public financing plan for legislative candidates breaks new ground in three respects: the use of a tiered matching system with high matching rates, the restriction to within-district contributions, and the restriction that money will not be matched if it comes from a donor who gives more than the matchable amount. As noted, significant questions were raised during the discussion of these ideas as to whether a system that only matched within-district contributions would work as well as an alternative that matched contributions from any eligible resident of the state. To address this question, our analysis compares the likely effects of the new system to one that would provide a 6:1 match for the first $250 from all eligible donors statewide. This 6:1 proposal is similar to the one in the Governor’s Executive Budget of January 2019 with one difference: the budget plan (and the New York City law in effect through 2017) would only have offered 6:1 on the first $175. We used $250 to hold this figure constant, letting us focus on the effects of the three new features in the law: tiered matching, not matching money from donors who gave more than $250, and the within-district requirement.

Broadly speaking, the law takes public money that might have been used to multiply the importance of some out-of-district contributions and redirects it to magnify within-district donors. In the New York State elections of 2018, roughly 40% of all funds contributed by donors who gave $100 or less to legislative candidates came from within the district, 50% came from elsewhere in the state, and 10% came from out of state. The vast majority of all donors (more than 90%) gave less than $100 to any candidate, but the bulk of the money came from donors who gave larger amounts. Either of the matching fund programs would have enhanced the role of small donors. Our questions are whether the new law or original recommendation would do a better job of multiplying small donors and helping a potentially viable challenger run a competitive race.

The analysis made a number of assumptions to compare the two programs fairly.

First, the analysis assumed that all candidates would choose to participate. As we shall see in the later discussion of contribution limits, there is little or no reason under this law not to do so. To avoid distorting the results, we only considered the effects of matching funds on candidates who reported having at least some receipts in their disclosure filings with the New York State Board of Elections.

For both programs, the models first applied the matching rates to the existing pool of donors without adding new ones. This is a completely unrealistic assumption because it would not be possible under the plan to receive matching funds without first qualifying, and many candidates need at least some new donors to satisfy the requirements. Despite the logical problem, having this number sets a useful baseline.

Our “new donors” scenarios imagine doubling or tripling the overall size of the static donor pool. These numbers were based on an overview of all fifty states. For years New York had nearly the lowest level of donor participation of any state. That rate went up in 2018 but was still low. Doubling would bring donor participation up to about the same percentage as New York City or the median state. This is surely a plausible expectation given the number of donors in question. Tripling would bring New York into the top tier but still below about six others (only one of which has a small-donor incentive system). We are not predicting a tripling, but that is surely possible if the program is a success, given the low baseline under static conditions.

We assumed that the new donors who were needed to reach the minimum number to satisfy qualification requirements would give $10 each. (Qualification requirements are discussed below.) We then assumed that the additional new donors who were needed to double or triple each candidate’s donor pool would give an average of $50 each. While $50 is a lot of money for many residents in poor districts, the number of donors needed to double or triple the status quo is not large. In reality, some new donors will give less and others will give more. A candidate with lower average contribution amounts would need more donors to reach the same financial result.

Finally, we did not assume that donors who previously gave more than $250 would simply disappear. Instead, we calculated that a $250 contribution would be worth $2,550. We therefore imagined that anyone who had previously given up to $2,500 would now give only $250 to have the same effect. If the donor gave more than $250 but less than $2,550, the donor’s own money in effect would be worth less to the candidate than a $250 contribution plus the public match. For donors who gave more than $2,500, we simply assumed they would give as much as they had given in the past, up to the new contribution limit.

The following tables show how many candidates of various descriptions would receive more public funds under a tiered in-district match than under the statewide 6:1 match for the first $250 that was initially proposed. The parallel columns compare what would happen with no new donors, double the donors, and triple. The first table is for the Assembly; the second is for the Senate.

Both tables show that if the 2018 donors were the only ones to give under the new system, most categories of candidates would do better with a 6:1 match that included out-of-district donors. However, a static donor pool is not at all realistic. In contrast, if you assume that matching gives candidates an incentive to reach out, and if you assume a reasonable number of donors will respond, the tiered matching system is a clear winner for almost all kinds of candidates. With new donors, the average challenger, incumbent, and open-seat candidate all would have come out ahead in both chambers under the tiered match.

There is every reason to expect an increase in donors. CFI’s peer-reviewed studies (cited in an earlier footnote) showed clearly that New York City’s program was responsible for a major increase in both the number and geographic diversity of the donors in its elections. There is every reason to think this will occur in the state’s elections, too. The only debate is how much of an increase to expect. By modeling a doubling of donors, we are merely assuming the state’s donor pool can grow from its bottom-dwelling history to equal the median state. The city’s experience supports this assumption.

Of course the requirement is made more difficult by limiting matching to within-district donors. There are good public policy reasons to take this approach but it will be a challenge for some candidates. The key empirical questions are (1) whether the greater difficulty of raising money within-district is adequately offset by the higher matching rates, (2) whether the donors in a district can generate enough money to mount a credible campaign, and (3) whether the candidates can qualify for the matching funds to apply. Tables 1 and 2 tell us that high matching rates will offset the within-district restriction as long as the candidates can attract new donors into the system. With this, most of the credible candidates who qualify for public matching funds should be able to raise the money they need to run a campaign.

Potentially viable challengers: To put more flesh on the issue, we considered the 42 Assembly challengers in 2018 who earned at least one-third of the vote in the general election of 2018. To make the test more difficult, we considered them under a static model, with no new donors. A static donor pool should be a harder test for the tiered system.

These 42 candidates raised a combined total of $251,971 from within their districts in 2018, along with $247,619 from elsewhere in the state. The division was almost exactly 50/50. As noted, we also assumed that donors who gave $251-$2,500 would only give $250 in the future, to ensure the contributions would be matchable and achieve maximum value for the candidate. This adjustment brings the in-district total to $325,211 or $7,743 per candidate.

At $7,743 per candidate, the within-district money would have been enough on average to qualify for matching funds. It also would have been enough to generate nearly $3 million in matching funds. This would mean an average of about $70,000 in matching funds per candidate. When combined with the private contributions generating the match, the average competitive challenger would have more than $77,000 without any new donors and without counting the money the candidates raised (and could continue to raise) from large donors, donors outside the district, political parties, or PACs. Moreover, the $77,000 in matched money would by itself be more than the $69,000 the same challengers managed on average to raise from all sources in 2018.

The conclusions are even stronger if we limit the analysis to the 14 of these 42 challengers from districts with below-average incomes. These candidates raised an average of $8,871 from the first $250 of their within-district contributions in 2018. That would have produced $1.44 million in matching funds under the new law or an average of more than $103,000 per candidate in public money. Adding the private, matchable money generating the match would give them a total of nearly $124,000 from these sources alone, without including any of their other existing donors, let alone new ones. That compares to an average of $83,054 that the same candidates actually raised in 2018 from all sources combined.

These challengers would do even better if they increased their donors, of course. With twice the donors (and each new donor above the qualifying threshold giving an average of $50) the challengers in below-average-income districts would receive about $141,000 in matching funds. With triple the donors, it would be about $160,000. Doubling should be feasible. Tripling seems aspirational but not beyond reach given the current low base. The hard part, as ever, will be to get started by qualifying.

QUALIFYING THRESHOLDS

Before candidates receive any benefits from matching funds, they first must raise enough money from enough people to show they are serious candidates. Having a qualifying threshold makes sense. No one wants to use public funds to underwrite a campaign that has no public support. Having a serious threshold is particularly important in jurisdictions such as Maine, Arizona, and Connecticut, where candidates who raise qualifying amounts then receive grants large enough to sustain an entire campaign. The problem is less acute in a matching fund system because even a legally qualified candidate will have to raise more to get a match. But the problem remains real. There is good reason, on one hand, to expect candidates to show a level of electoral seriousness before they get public money. On the other hand, it would defeat the purpose of public financing to set the thresholds so high as to deny money to potentially viable candidates. Setting the requirements at an appropriate level requires balancing competing goals. This is not easy. The New York State Campaign Finance Reform Commission weighed a number of alternatives, based on forecasting and predictive modeling, before settling on a balance. The following table lays out the qualifying thresholds in the original plan proposed in January alongside the ones finally included in the new law.

The qualifying requirement is made up of two parts. Candidates need both a minimum number of eligible donors and a minimum amount of money. Under both plans, legislative candidates would have to satisfy the minimum number requirement with donors who live within the districts they are seeking to represent. Under the original plan, the qualifying dollar amount could be raised from any eligible donor in the state. The donor could give any amount up to the contribution limit but only the first $175 would count toward the qualifying threshold. These requirements parallel those used in New York City, where city council candidates are also allowed to raise the qualifying dollar amount from donors anywhere in the city. The state commission rejected this approach. Amidst controversy, it decided to require all qualifying contributions to come from in-district residents. Much of the controversy was over whether a challenger from a poor district would be able to raise enough solely within the district. The commission took an innovative two-pronged approach to address this concern. First, it set a lower dollar requirement for legislative districts with below-average median household incomes than for districts above the average. Second, it reduced the dollar threshold for all offices, statewide as well as legislative. Finally, it wrote a fallback provision into the law in case its approach is found to be unconstitutional. Rather than leaving it to the courts or defaulting to the higher requirement, the recommendation says that the substitute thresholds would fall midway between the above-average and below-average income districts. As one indication of how much the requirement had come down, the fallback thresholds were exactly half those in the original January proposal.

Based on CFI’s simulations, the law’s qualifying thresholds now should go a long way toward achieving their intended goals. The following tables show how many candidates would qualify under the final plan compared to the original proposal. The table shows four different situations. Two (labeled “static donors”) are based on the candidates who ran in 2018 and on their actual donors (and contribution dates) for the cycle of 2018. The first two lines show how many would have qualified by September 1. We present this because candidates need public money early in a campaign if it is to be useful. The second set shows how many would have qualified by using all of their donors during the full election cycle. We offer because it is reasonable to expect that candidates who want public money will begin their fundraising efforts earlier (although much of the money from small donors will still have to wait for a campaign to heat up).

The next rows show what would happen if the program brings more small donors into the system, as expected. Under these scenarios, we assumed that any viable candidate should be able to find enough $10 donors to meet the requirement for a minimum number of donors. We also imagined that the candidates would find enough other small donors (in addition to these $10 donors) to double the number of their small donors above 2018 levels. For this analysis, as for the previous ones for matching rates, we assumed that the extra new donors would give an average of $50 each. (If they give less, more donors will be needed.) We then identified the candidates who would and would not have qualified for public funding under each of the scenarios.

The results are shown in the next table.

Table 4 shows that a substantially higher percentage of Senate and Assembly candidates should qualify for public financing under the law as it was finally adopted than under the original proposal. This was true for each of the four scenarios. At least as important: the advantage holds for different types of candidates across the board. To evaluate this we isolated Assembly challengers who received at least 33% of the top-two-candidates vote in the general election. Only 24% of these candidates would have qualified by September 1 with their existing donor pools. This is a low percentage, but better than the one for all candidates (including incumbents) under the original plan. It is also not surprising because challengers’ campaigns tend to develop more slowly than those of incumbents or open-seat candidates. By the end of the year, nearly half (45%) of these challengers would have qualified with existing donors. And if the challengers respond to the new incentives by doubling their donors, roughly two-thirds would have qualified (64% by September 1 and 69% by December 31). Whether this works as predicted should be monitored, but we consider two-thirds to be a reasonable outcome.

CONTRIBUTION LIMITS

The new law’s contribution limits have been criticized by some as not doing enough to “get big money out” of politics. The critics have a point when they say the changes to contribution limits were modest, but more significant may be an issue the new law did not address at all – contributions to and from the political parties. The following will first discuss the limits on contributions to candidates.

New York State currently has the highest (or nearly the highest) contribution limits among the 39 states that restrict contributions from individuals to candidates. The following table puts New York’s previous limits in a national context. The table is based on the limits for 2018 to let us compare New York to other states. Because the new law delayed application of most of its campaign finance provisions until after the elections of 2022, the inflation-adjusted limits for 2019-22 are presented in the table’s first footnote. However, we need to use the 2018 limits in our model to calculate the combined impact of the law’s contribution limits and public financing on candidates’ overall sources of funds, which is based on the actual candidates who ran in 2018.

As Table 5 makes clear, New York’s current contribution limits are very high by national standards. Some might argue that this makes sense because New York is a large state where it takes a lot of money to campaign effectively. In support, one could point to the fact that California’s limits rank close to New York’s. However, the large-state argument would seem to relate more directly to expenditures than to individual contributions. Candidates in large states may need more money; they do not necessarily need more from each of the largest donors. This observation is supported by the fact that other large states have contribution limits closer to the national median, including Illinois and Florida.

Both the governor’s plan at the beginning of 2019 and the one that became law at the end of the year seemed to accept the view that contribution limits in New York were too high. Table 6 compares the limits in effect in 2018 with the two plans.

Both proposed plans would have reduced maximum contributions, especially for statewide candidates. The initial 2019 draft would have allowed candidates for all offices to raise more from a top donor if the candidates opted out of public financing than if they participated in the system. The 2020 law equalized the two limits. Because the proposal does not include spending limits, one Republican-appointed member of the commission objected that equalizing the limit meant that no candidate would ever have a reason not to accept public financing. This was a serious objection that was never answered. Also not answered was the objection from outside reform organizations that neither the public financing provisions nor contribution limits would take effect until after the election of 2022. This will allow Governor Cuomo to continue raising money under the old limits should he seek a fourth term, as is currently expected.

As noted, some critics of the new law believe the contribution limits will still be too high after they take effect. The argument is understandable. With a gubernatorial limit of $18,000 New York would rank fourth among states with limits, the Senate limit would place it third, and the Assembly’s $6,000 limit would make it sixth. The new limits would have some impact, but not a major one for many candidates. Table 7 shows how much the 2018 candidates would have lost if the new limits had been in place and their 2018 donors continued to give – but only up to the new limit.

As Table 7 clearly shows, the biggest loser by far would have been Governor Cuomo, who would have needed a different fundraising model to raise the same amount under the new program. A cynic might see that as helping to explain the deferred implementation date. The other rows show that Senate candidates would take a larger proportional hit than Assembly candidates, with no huge difference between incumbents and non-incumbents. Public funds would have more than made up the difference for almost every 2018 candidate who chose to participate, although not the incumbent governor. However, there would be a strong reason, as noted, to have a lower contribution limit for participating candidates than non-participating candidates. This would further cut down the already reduced yield they would receive from maxed-out contributions in the “sources of funds” models below.

If the concern is about top-dollar donors, New York State’s rules for political parties will continue to present much more inviting opportunities than contributions to candidates. Under provisions that were left unchanged by the new law, individuals and political action committees will be able over the course of two years to give $234,600 each to the state political party, Senate campaign committee, and Assembly campaign committee. (The law, as written, includes an aggregate ceiling to restrain how much an individual may give to all committees combined, but the Supreme Court overturned aggregate limits in 2014.) Individuals and PACs are also allowed to make unlimited contributions to a political party’s housekeeping account to pay for the party’s headquarters and overhead expenses. Finally, the law permits the parties to make unlimited transfers to candidates. These transfers are disclosed but not considered to be contributions subject to limits. Typically, party transfers focus on the most competitive races. In 2018, the largest cumulative amount transferred totaled $915,510 to one Republican candidate for the Senate.

One could make a strong argument in favor of allowing the parties to transfer unlimited funds to candidates.[9] However, combining unlimited transfers from the parties with unlimited contributions to the parties is an open invitation for circumvention. While there is little reason to expect New York’s party leaders to accept changes any time soon, the case for party spending and transfers would be less problematic if they were coupled with lower limits on contributions to the parties. If one is concerned about the role of “big money,” the party limits and transfer rules raise issues that dwarf any raised by the revised candidate limits.

SOURCES OF FUNDS

Previous CFI reports have shown that almost every candidate would do better under any of the public financing systems that were considered in New York this year than they did under the status quo. But more to the point, given the commission’s mandate, this will occur while producing a dramatic shift in the sources of funding for candidates. The following bar charts tell the funding-source story for Assembly and Senate candidates under the commission’s plan. They are followed by bar charts for gubernatorial candidates. The first bar chart for each chamber shows the actual sources of funds in 2018. The second shows what the distribution would be if candidates raised money from the same donors but under the new rules. In the third, we assume the new rules and double the number of donors. The assumptions we use are the same as in previous models. To reiterate:

All candidates are assumed to participate in the new system.

Donors who gave $1-$250 would continue to do so.

Donors who gave $251-$2,500 would give only $250 so their money could be matched. This would automatically shrink the size of the middle bar, and increase the small donor bar, even without matching funds or new donors.

Donors who gave $2,501 or more would give as much as they gave previously, but only up to the new contribution limits.

All matching money would be attributed to the donor responsible for the matching and counted in that donor’s bar.

In the new donors’ scenario: new donors up to the number needed for the qualifying threshold were assumed to be giving $10 each.

Any new donors above the number needed to double the donors were assumed to give an average of $50 each. It was also assumed that they would live in the district.

The following charts are for the Assembly first, followed by the Senate. The first bar on the left includes contributions from donors who gave an aggregate of $250 or less, along with the matching money these donors generate. The next two bars represent individual donors with higher aggregates. “NPO” refers to contributions from non-party organizations, such as PACs. Party money includes transfers as well as contributions. “LLC” refers to contributions from limited liability corporations.

Figure 1: NY ASSEMBLY CANDIDATES UNDER THE STATUS QUO AND NEW LAW

Figure 2: NEW YORK SENATE CANDIDATES UNDER THE STATUS QUO AND NEW LAW

The story in these legislative bar charts is dramatic. Small donors, with matching funds for those who live within a district, would shift from being relatively insignificant in Assembly races to providing nearly three-quarters of the candidates’ money. The results for the Senate are not quite as dramatic but powerful nonetheless. Small donors would increase from 8% to 56% of the whole in Senate races. Moreover, despite the concerns of critics who think that contribution limits of $6,000 (Assembly) and $10,000 (Senate) are too high, the donors who max out would shrink to a minor factor under the new law.

GUBERNATORIAL ELECTIONS

The gubernatorial results are more complicated. Because there are so few viable gubernatorial candidates it is not useful to present summaries based on means or medians. The variations among the candidates are too great. Instead, we present separate charts for each of the three main Democratic and Republican candidates of 2018. The incumbent governor, Andrew Cuomo, was the candidate who depended most on large donors. Cynthia Nixon, who lost to Cuomo in the Democratic primary, funded much of her campaign from small contributions. Marc Molinaro, the unsuccessful Republican candidate in the general election, raised his campaign funds from a mixture of sources. The following bar charts show what the new law would have meant for their campaigns.[10]

Figure 3: NY GUBERNATORIAL CANDIDATES UNDER THE STATUS QUO AND NEW LAW

ANDREW CUOMO

CYNTHIA NIXON

MARC MOLINARO

The Figure 3 bar charts tell us that whether a candidate will benefit from the plan, and whether more small donors will be brought more into the picture, depends upon the candidate’s fundraising base. Andrew Cuomo would not get anything out of the plan. He would be hurt by the contribution limit and does not have enough small donors to replace them. He would have to reconfigure his campaign to reap a benefit. Cynthia Nixon is almost the poster child for a candidate who stands to gain. She raised money from small donors in 2018 and would see their role increase. The major surprise is the GOP challenger, Marc Molinaro. He raised money from a traditional Republican mix of donors. He received 40% from donors who gave $1,000 or more. The 15% he received from small donors was outdone by his 16% from NPOs and 17% from the party. Even with that initial mix, however, his small donors would almost come up to Cynthia Nixon’s level in their importance.

PROJECTED COST

One frequent complaint about public financing concerns how much the system supposedly costs. How much may be too much is inherently subjective. From some perspectives, the projected cost looks like a bargain. Special tax benefits for only a few major donors can easily exceed the full cost of a public financing system. Table 8 provides high estimates for the likely cost of a new system by assuming that all candidates opt in. The table itself involves three sets of calculations:

One set of figures shows the cost with no new donors or candidates.

A second assumes enough new donors to double the number of donors. As previously in this report, we assume the first new donors give $10 each until the candidates qualify for matching funds, and the remaining donors give $50 each.

Under the new law, unopposed candidates will not receive public money. We take this into account when accounting for the system’s cost. This results in the lower estimates in the first lines of the table.

We have to assume that public financing will bring new candidates into the system. Only 30 seats were contested in Assembly primaries in 2016 and 2018 combined. Another nine were contested in the Senate. That is a contestation rate of 10% in Assembly primaries and 7% in Senate primaries. In the general elections of 2016 and 2018, only 38% of Assembly races were contested and 53% of the Senate races. Our estimates assume many more contested races. In fact, we imagined that all candidates would face at least some significant opposition in either a primary or general election. This is much more than any recent experience for New York State. We also assumed that the new candidates would require the same amount of public money as the average non-incumbent. In addition, adding in new candidates means that the previously unopposed winners will now be eligible to receive matching funds. The two changes to the candidate pool result in the cost additions in the table’s third subset of lines – the one just above the grand totals at the bottom. Again, we are not predicting this number of candidates will emerge. Rather, we make an assumption for the purpose of providing a conservative cost estimate. (For a detailed explanation of the methods used to estimate the number and cost of new candidates, see the Appendix.)

Most rows in the table present the cumulative cost of matching funds over the course of four years. This would include one set of elections for statewide offices and two for the legislature. The final lines show the average cost per year.

As the table shows, matching funds would cost an average of $28.3 million per year – including new candidates but with an essentially static donor pool. Doubling the donors (and including new candidates) would bring the annual matching fund cost up to $51.3 million per year. To these matching fund costs, we have added a line for an estimated $25 million per year for administration and enforcement.[11] The estimate of $76 million per year (with double the donors and including administration) is well within the $100 million allowed in the law that created the commission.

MINOR PARTIES, COST, AND SEVERABILITY

The most controversial provisions in the new law have been about minor party ballot access. Under the state law that prevailed through 2019, minor parties maintained a position on the state ballot if their candidates received at least 50,000 votes in the previous gubernatorial election. New York is also one of only four states that allow “fusion” voting – a practice that allows a candidate’s name to appear on more than one party’s ballot line and adds the votes on all lines together for the final vote tally. With fusion voting, the 50,000 votes to qualify for ballot access may be earned with votes on the minor party’s line for a major party’s cross-endorsed candidate. In addition, an independent group that has not earned automatic access may petition its way onto the ballot by gathering 15,000 valid signatures, including at least 100 from each of the state’s congressional districts.

During its early meetings, the commission considered abolishing fusion voting. This position was most strongly advocated by Commissioner Jay Jacobs, an appointee of the governor who is also chair of the State Democratic Party. However, Jacobs wrote in his individual statement for the final commission report that the commission turned away from this approach because “it could not be reasonably established that the practice of fusion voting would have any significant detrimental impact on the costs of a public financing program.”[12] Instead, the commission decided to increase the ballot access requirements. Beginning immediately, a party will gain automatic ballot access only if it received at least 2% of the total votes cast in the previous election for governor or president or 130,000 votes, whichever is greater. Independent nominating petitions were tripled to require 45,000 signatures (or 1% of the last gubernatorial vote, whichever is less), with at least 500 (instead of 100) signatures per congressional district. Under the new rules, only the Conservative Party has regularly satisfied the 130,000 vote requirement. The liberal Working Families Party has ranged between 112,000 and 148,000 since 2012, and the Green Party has reached 130,000 only once. No other party comes close.[13]

The net result of the new rules will be to diminish the number of minor parties on the ballot. There is a vigorous debate in New York as to whether this is a good or bad outcome. As an institute with a specific campaign finance expertise, CFI will not comment on the merits of this policy argument. However, we do have the expertise to analyze the key justification the commission put forward for presenting minor party ballot access as an integral part of a campaign finance package.

In the main body of its report, the commission said: “The primary motivation for the Commission addressing party ballot access is to craft a public campaign finance system that remains within the enabling statute’s limitation of a $100 million annual cost.”[14] However, no evidence is offered in the main body of the report endorsed by a majority of the commission to support the claim that the old ballot access rules, in fact, would have threatened the public campaign finance budget. The only such arguments appear in Commissioner Jacobs’ statement, in which he was speaking for himself. His arguments cannot withstand scrutiny. Its central claim appears in the following statement:

The recent example of the NYC Public Advocate special election where 17 candidates made the ballot, 11 qualifying for taxpayer funding is cautionary. While a Special Election that was open to all parties, this could mirror what general elections in the future look like with many parties.

Those 11 candidates, combined, spent over $7,165,000 of taxpayer money. More than half of them received about $550,000 each.[15]

The main problem with this example is that if it proves anything, it runs opposite to the conclusion Jacobs drew from it. As he noted, eleven candidates qualified for public financing. Of these, seven were current or former Democratic members of the New York City Council or State Assembly, one was a Republican member of the City Council and the remaining three were clearly identified Democrats (one of whom is a Democratic party official, one had served in two presidential administrations and one had served as a delegate to the Democratic National Convention). A few of the candidates self-identified as “Democratic Socialists” but all were Democrats or Republicans. The election offers no support to the claim that public financing will artificially underwrite third-party candidacies. Moreover, this is the only empirical evidence anyone on the commission offered on the subject of the potential cost of public financing for minor party candidates under the previous ballot access rules.

Consider these facts. None of the tiny handful of the Assembly, Senate, or statewide candidates below Governor who ran in 2018 as purely third party candidates would have qualified for public funds under the new law. Only one such Assembly candidate would have come close. Most of the general election candidates who carried a minor party label, and who would have qualified, had run and lost in the primaries as Democrats or Republicans. They would have received their public funds while running as Democrats or Republicans and they would have spent most of their money during the major party primaries. Under the new system, similar candidates will again raise and spend their money as Democrats or Republicans and the new ballot access rules will encourage this. There is some possibility that a minor party gubernatorial candidate could qualify for matching funds. In 2018, only one gubernatorial candidate had enough donors to qualify. The other two were not close. However, our $51 million cost estimate includes giving all three enough to qualify and then doubling their money from small donors. While that could conceivably come to a maximum of about $10 million over four years, it is already included within the $51 million. If a few additional minor party candidates qualify for this or any other office, we have built enough new candidates into the assumptions to cover them. Therefore, we estimate the net cost of matching funds for minor parties under the old ballot access rules would be little or nothing beyond what is already estimated. It could be slightly more under some conditions, but not remotely enough to threaten the budget.

This point is not being made to argue one way or the other about the merits of ballot access rules. As noted, this would lie beyond CFI’s expertise. The cost issue becomes important, however, because of the following singular statement in the commission’s final report.

During the Commission’s first meeting, held on August 21, 2019, the Commission voted to package its recommendations on a voluntary public campaign finance system in a single, non-severable product, due to the complexity and inter-relation of the various components of the proposed system. The Commission’s vote at its final meeting, held on November 25, 2019, reflected this packaging of a proposed public finance system into a single recommendation, as presented in the “Recommendations” section of this report. It is the expressly stated intent of this Commission that each of the recommendations made in this report be interpreted as non-severable from any other recommendation, except for the one instance where explicitly provided for in the Recommendations section.[16]

One of the co-authors of this report attended the meeting on August 21. The motion to package all of the commission’s recommendations was sprung on the commission at the beginning of that first meeting with no advance warning. The discussion that followed showed many of the commission’s members to be confused. They understood they were being asked to accept or reject the whole package in a final up or down vote. At no point at this or later public meetings, however, was there any discussion that the commission would be endorsing a claim that the various parts of the package were to be presented to the courts as being legally inseverable from each other.

One could make a case for saying that the new law’s qualification rules and matching rates should not be separated. But we see no basis other than the dubious budget claim made above for treating ballot access and public financing as being logically inseverable – as opposed to being brought together for political convenience. As of this writing, minor parties have brought or are considering lawsuits against the commission. We have no idea how such lawsuits might be decided. However, the report’s declaration of inseverability could mean that a ruling against the ballot access provisions would bring the whole law down. However, there is no substantive evidence to support such a result. To go further, there is no indication that the commission seriously weighed any evidence that would bear on this point. It therefore does not clear the bar that should be expected for judicial deference. As a result, whatever the merits of the policy arguments about ballot access, these provisions can be and should have been considered legally severable and logically distinct.

CONCLUSION

Nowhere does a matching fund system include as many new features as does the New York State law’s provisions for legislative candidates. These include the level of public matching funds to be offered for small-dollar contributions through tiered matching rates, restriction of matching funds to contributions from district residents who give no more than $250, and use of district wealth to structure candidates’ qualifying thresholds. Under the assumption that a reasonable number of donors will respond to matching funds, the tiered matching system is a clear winner for almost all kinds of candidates.

If these innovations work as our models predict, they will have a dramatic impact on funding in New York State elections. We predict that the proportional role of small donors in Assembly races will increase from 14% of candidates’ receipts to more than two-thirds. In Senate races, the proportion will rise from less than 10% to more than half.

The new system will put these predictions to the test if it is given a chance to do so. When it does, the results will provide a solid empirical basis for balancing the comparative effects of New York State’s new approaches with others being tried elsewhere.

APPENDIX: METHOD FOR ESTIMATING THE COST OF NEW CANDIDATES

Cost Estimate for Additional Candidates Running for Office Based on 2016‐2018 Campaigns

The estimating process for the 2016 and 2018 election cycles involved two parts, one for primary elections and another for the general election.

1. Primary Candidates, Losers

There were 39 challenger primary losers in 2016 and 2018 (Senate and Assembly). For the purpose of arriving at a conservative (high) estimate of the likely cost, we assumed that four times that number would be run under the new system, and that each one would raise the same amount, with the same donor profile, as the estimated public funding cost for average candidates who actually did run in a primary and lose. This came to $3.52 million over four years ($881,000 annually): $21,000 for Assembly candidates and $81,000 per Senate candidate.

2. New General Election Candidates

For the general election, the estimate added 87 Assembly candidates over the two election cycles, at $68,000 each. It added 18 Senate candidates, at $332,000 each. The total here is $11.89 million over four years ($2.97 million annually).

Explanation of assumptions about new general election candidates:

First, put aside the districts with two major‐party general election candidates, since these were already in our calculations. We divided the remaining general election districts into three categories: (a) uncontested; (b) contested, but no major party candidate; (c) major party candidate on ballot but did not file a campaign finance report.

The total number of major party general election candidates who actually ran in these three sets of districts were: Assembly ‐‐ 91 in 2018, 96 in 2016, and Senate ‐‐ 30 in 2018, 31 in 2016.

Of these candidates, the following ran in heavily one‐party districts in NYC: Assembly ‐‐ 47 in 2018, 53 in 2016. Senate ‐‐ 24 in 2018, 17 in 2016. We have provided enough funds for these one‐party city districts in the budget line that assumes new candidates will emerge in the primaries.

We assume that one new general‐election candidate would run in every one of the other districts. This is a generous assumption. We also assumed the new candidates would raise as much matchable money on average as the challengers who actually ran in 2018. Again, this is a very generous assumption.

[6] Michael J. Malbin and Michael Parrott, “Small Donor Empowerment Depends on the Details: Comparing Matching Fund Programs in New York and Los Angeles,” in The Forum: A Journal of Applied Research in Contemporary Politics, 15(2): 219-250 (2017); Michael J. Malbin, Peter W. Brusoe, and Brendan Glavin, “Small Donors, Big Democracy: New York City’s Matching Funds as a Model for the Nation and States,” Election Law Journal, 11 (1): 3-20 (2012). See also Elizabeth Genn, Michael J. Malbin, Sundeep Iyer, and Brendan Glavin, Donor Diversity through Public Matching Funds (The Brennan Center and the Campaign Finance Institute, 2012).

[7] Michael J. Malbin and Peter W. Brusoe, “Campaign Finance Policy in the State and City of New York,” in Gerald Benjamin, ed., Oxford Handbook of New York State Government and Politics (New York: Oxford University Press, 2012), pp. 79-109.

[8] The issue was lobbied in 2019 by a remarkable coalition of more than 200 organizations brought together and staffed under the heading of “Fair Elections New York.” Partners included tenants’, environmental, religious, civil rights, immigration, and other progressive issue organizations, along with traditional government reform groups including Citizens Action, Reinvent Albany, NYPIRG, and the Brennan Center for Justice.

[10] The gubernatorial bar charts made one change in assumptions from the legislative bar charts. Because $250 will be matched at a 6:1 rate in statewide contests, instead of the higher rate used for legislative races, a $250 contribution is worth only $1,750. We therefore assumed that any donor who gave $2,000 or less would only give $250. Donors who gave $2,000 or more would continue to do so.

[11] CFI’s previous reports used an administrative cost estimate of $21 million based on an estimate done for the State Senate several years ago by the New York City Campaign Finance Board (see page 11 of the February 2019 CFI report cited earlier.) Members of the New York State Commission on Public Campaign Finance Reform regularly said they expected administrative costs to be about $25 million per year. The point was not disputed by the Republican-appointed member of the commission who also serves in a high staff position in the New York State Board of Election’s campaign finance compliance unit. We do not claim independent expertise on administrative costs and have used this figure.

[12] New York State Commission on Public Campaign Finance Reform, Report to the Governor and Legislature, Dec. 1, 2019, p. 61.